Strategy & Business

Plans

IEI Business Plan Workshops

TL Hill
thill@sbm.temple.edu
215-204-3079
Business plan workshops

• Matching Products and Services with Markets

– First one
• Competitive Analysis
– Last week
• Business Model
– Tonight
• Market and Sales
– Monday, November 19, 2001 - 6:00 pm to 8:30pm
• Financial Projections
– Monday, November 26, 2001 - 6:00 pm to 8:30pm
Feasibility plan outline

• Executive Summary • Production/Operating

• Product or Service Functional Strategy
• Technology/Core • Intellectual Property Issues
Knowledge • Regulation Issues
• Target Market • Critical Risk Factors
• Competition • Timeline
• Industry • Break-even Analysis
• Strategy/Business Model
• Marketing and Sales
Functional Strategy
Strategy can mean many things

• Plan
• Process • Strategic Management
• Position
• Pattern • Strategic Positioning
• Perspective
• Procedure • Strategic Navigation
• Play
• Ploy
• Strategic Tactics
Strategic management

• Is a detailed pattern of decisions that

describes in some detail what a company will do
– in light of what it might do,
– what it can do,
– what its leaders want to do, and
– what it should do.
– Kenneth Andrews
Strategic management

• Disciplined Environmental Scanning

iterative
process…
of pursuing a
mission,
while Evaluation & Strategy
managing Control Mission Formulation
the
relationship of
the firm to its
environment. Strategy
Implementat
ion
Strategic management starts
with the situation
Social, Industry Other
political, attractiveness, opportunities
External regulatory, industry and threats --
& community dynamics, & like new
Factors considerations competitive technologies
conditions

Company’s Strategic Situation

Firm’s Ambitions, Shared vision,

strengths, philosophies, values
Internal weaknesses, & ethical and company
& competitive principles culture
Factors market position of key
executives
But pushes beyond the situation

• Strategic management is all about chasing

a dream
• In a disciplined but opportunistic way
• By developing your assets
• To take advantage of opportunities the
world (environment, industry, market) gives
• While shaping the world when you can.
Strategic management is about
finding ways to grow...
Environmental Scanning

Evaluation & Strategy

Control Mission Formulation
Vision

Strategy
Implementa
tion
Two basic strategic options

• Position Strategy
– Unique, valuable, defensible position in a market or
industry
– Supported by a tightly integrated value chain /
activity system
– Good for relatively stable industries/markets
• Resource/Navigation Strategy
– Vision-driven nurturing and leveraging of core
resources
– Supported by tight culture and explicit learning
– Good for dynamic industries/markets
I. Strategic positioning
• A niche is typically the
market the firm is uniquely
External qualified to serve
Opportunities
& Threats

Niche

Internal
Strengths &
Weaknesses
Classic positional strategies
• Cost (price) leadership
• Differentiation
– Quality, design, support/service, image
– Always starts with the product
• Focus
– Broad or narrow
– Always starts with a specific market
segment
 Examples of positional
strategies
• Cost (price) leadership
– Crown, Cork & Seal (pennies, plants). Wal-mart (warehousing,
negotiation). Motel 6 (location, services, salespeople). Cintas
(plants, logistics).
• Differentiation
– Mercedes (quality). Apple (design). Nordstrom (service).
Nike (image). G&K (clean rooms, radiation). Most
entrepreneurs (Zitner’s, Prompt.)
• Focus
– Wal-mart (broad - rural). Specialty bookshops (narrow -
Giovanni’s room, NSP). Some entrepreneurs (NRI - changing
mix & services).
Elaborations of positional
strategies
• Penetrate new markets
– Insurance in India. IMS.
• Develop new markets
– E-government. (Disruptive technologies.)
• Develop new products
– Gillette. Intel.
• Become indispensable
– Microsoft. Best subcontactors.
• Fortify
– Borders wholesalers, B&N’s leases.
TOWS analysis

Internal
Factors Strengths Weaknesses
(S) (W)
External
Factors
SO Strategies WO Strategies
Opportunities ------------------------- ------------------------
Use strengths to Offset weaknesses
(O) take advantage of to take advantage
opportunities of opportunities

ST Strategies WT Strategies
Threats -------------------------- -------------------------
(T) Use strengths to Min. weaknesses
avoid threats to avoid threats
TOWS analysis exercise

• List 2 opportunities & 2 threats

• List 2 strengths & 2 weaknesses
• Match ‘em up
– trying to use (or develop) strengths to take advantage
of opportunities while offsetting weaknesses and
defending against threats
– avoiding strategies that put weaknesses in way of
threats
• Use classic strategies -- cost, differentiation,
focus -- as prompts for ideas
Position strategies require fit

• Fit refers to the niche a firm serves and the way its
products or services are positioned
• But fit also has to do with every other part of the
internal structure of the firm.
• A well positioned firm crafts itself to serve a niche
better than anyone else
• Starting a new firm offers the exciting, seductive,
often advantageous opportunity to craft a perfect fit
between specific opportunities and internal capabilities.
Value chain

Marketing/ Inbound Operations Outboun After Sales

Sales Logistics d Service
Logistics
Human Resources
Margin
Technology

Infrastructure

Procurement

• A strong value chain is a cross-linked net of activities that

affects the cost or performance of the whole.
• Supporting a strategy by optimizing both individual functions and
the links between them to support a strategy yields a powerful,
durable, hard-to-duplicate advantage.
 Value chain for NSP

Trade pb
Prepay
Direct mail Editoria Galleys - Library
vs
Distributor l review & rate
Returns
hc UPS
Green
tax
Cooperative: multiple skills, networks, low-cost, apprenticeship Small
but
stead
Desk-top, enterprise, email y

Land trust, warehouse, 501(c)3, friendly capital

Prompt press, newsprint

Activity system

• Is a less linear way of thinking about

the kind of internal fit that supports a
strategy.
• Map crucially interrelated features
and functions that define a firm’s
unique skills and strategy.
• Supports competitive advantage with
reinforcing patterns or systems.
Ikea’s Activity System
High-
Self- traffic
transport Suburban store
Explanato Location Impulse
ry labeling layout buying

Limited Self-
service Most
Customer Limited
Easy Selection items in
Service sales staff stock
transport
Self On-site
-assembly inventory
Customer
Flat Modular loyalty Year-
Low Mfg
packing Designs round
kits Cost stocking

Wide Long-term
Design
variety Easy to suppliers
focused on
make
low cost
Experience curve

• For positional strategies, experience is the ultimate

source of advantage.
• Experience fuels the tacit knowledge that drives
productivity improvements, innovations, elaborations
of strategy, etc
• Successful firms are especially good at creating the
social and institutional structures that support the
shared development of such tacit knowledge
Value chain or activity chart
exercise
• Draw the value chain for your firm
• Note reinforcing (and jarring) pieces
• Try to create more reinforcements
OR
• Jot down functions and features
• Look for patterns and connections
• Try to crystallize patterns
II. Strategic navigation

• In a hypercompetitive world, all advantages are very

temporary
• Competition escalates rapidly along certain dimensions
– Cost/Qualty, Timing/Know-how, Barriers to entry, Deep
pockets
• Leading to sudden shifts in the rules
– as competition jumps to new arenas, along new ladders
 Strategic navigation depends on
timing
Competitive Rapid change erodes
• positions…

Edge Strategic Window leading to

temporary
opportunities

Launc Exploitation Counterattack

h
Time
Strategic navigation requires
vision
• Vision pulls firms forward
• Strategic intent is vision manifest as focused ambition:
– Lengthens organizational horizon
– Promotes focus on ends
– Encourages creative means
– Promotes consistency between evolving short-term goals and more
stable long-term ones
– Promotes focused resource allocation
– Tends to motivate
Strategic navigation builds on
core assets
• Flexible strategies require core assets
– plus a commitment to developing them
• Assets are sources of future value
– Tangible, intangible
– Owned or not (but available)
– Often with a useful life
– Often people: customers, employees, organizational
knowledge
– Especially core competencies: special knowledge and skills
embedded in employees and systems
Four arena analysis

• Trace escalating competition along ladders

– Trying to predict shifts to new areas
• Cost/Quality
– Cintas: Ever better plants and routes
• Timing/Know-how
– Aramark: Bought into corporate uniforms
• Barriers to entry
– New plants, sophisticated logistics, global reach
• Deep pockets
– Slugging it out -- and sometimes buying out small fry
Navigational strategies
• Find loose bricks
– Stake out undefended territory, fly low, cherry
pick…looking for a beachhead, not a niche (Honda)
• Change the terms of engagement
– Sidestep barriers to entry (Canon)
• Collaborate
– License, outsource, joint venture to gain
information and knowledge and advantage as go
(lamp shades to ceiling fans)
Navigational strategy exercise

• What is the rate of change in your industry or

market?
• What is driving change?
• In what arenas is competition focused?
Cost/Quality, Timing/Know-how, Barriers to
Entry, Deep Pockets?
• How might you take advantage of flux in your
field?
III. Business models

• A business model describes what a firm will do, and

how, to build and capture wealth for stakeholders
• Effective business models operationalize good
strategies -- turning position, fit, etc (or vision and
resources) into wealth
• Start-ups offer the opportunity to craft a perfect
fit between specific opportunities and internal
capabilities.
Business models build & capture
wealth for stakeholders
• Build Wealth
– Through an alchemical transformation of inputs into something
that customers value enough to pay for at more than cost
– Or through developing enough potential to be bought: valuable
positions, know-how, customers…
• Capture Wealth
– Private or public sale
– Profit: Revenues plus cost control
– Plus: The good life, a rich family life, entrepreneurial success,
social impact
Business models start with
strategy
1. Describe the landscape:
– Porter + OT.
– Environment, industry, and relevant trends.
2. Paint in competitors:
– Competitor table. Perceptual maps.
– What do you need to play? How do competitors
compete? What opportunities exist?
3. Identify strengths & weaknesses
– Vision, skills, core technologies
4. Choose a position/strategy
Business models enclose wealth

4. Identify stakeholders you must serve

– Owners, family, workers, community
5. Identify the wealth you will capture
– Capital, good life, family life, fame
entrepreneurial effectiveness, social value
6. Sketch a structure that will
operationalize the strategy
– Value chain or activity system
Business models define
structure
6. Work out the implications
– Functional strategies
– Timelines: Ie., the path to profitability,
sale or other realization of value
– Financial projections & capital needs
Build a business model exercise

• Strategy
• Stakeholders
• Wealth
• Model
• Structural implications
• Revise model
IV. Functional implications of
the business model

• Marketing and sales

• People, management, governance
• Operations
• Finances
Marketing and Sales
Finance

• Next week: Marketing & Sales

• Two weeks: Things Financial
• Now: Miscellaneous thoughts on
people, management, governance
and operations
People

• Employees, managers, stakeholders

• More important even than cash
– Effectiveness, pleasantness
• Most difficult resource to find, to
keep and to manage
Business systems

Ownership Family/Stakeholder
Pressures Pressures

Managerial
Pressures
Business systems dynamics

• Each system has its own logic, its own bottom

line
– Ownership: Wealth creation & maintenance
– Family & Stakeholders: Relationships
– Management: Efficiency & replicability
• Each has its own time horizon
– Ownership: Ten years or one working life
– Family & Stakeholders: Reproduction of
generations
– Management: Quarterly or annual results
Governance defines the circles
and the relationships
• Who decides what
– Owners, key employees, key customers, family
members, professional advisors
• The decision makers for each circle
– Owners (board of directors)
– Managers (management team)
– Family/stakeholders (council)

• The scope of their decisions

• Their responsibility to each other
• Conflict resolution
Governance example

• Company with strong family ties & 3 sons

• Owner’s retirement needs drive succession
– Two sons buy business (not land) from father
– CEO-in-training - 50.+%; Sales manager 50-%
– Board advisors
• Family needs led to side business:
– Graphic artist, co-owned by CEO-in-training and serving main
business
• Management needs turn alliance into new web-based
business
Governance structures

• Direction
– Vision, values, culture
– Formal visioning
– Cultural maintenance
• Agreements
– Contracts, bylaws
• Support
– Facilitators, advisors, models
Sharing the vision

• Vision provides both energy and

stability.
• Core Ideology anchors the team
• Dynamic Envisioned Future draws the
team forward
– Long-term, audacious goals
– Concrete, vivid description of the future
 Value driver analysis
[Time Frame]
H
Intervention
Intervention Z
B

Impact Intervention
Intervention C
Y

Intervention Intervention
X A
L H
Probability of
Success
Value driver analysis

• Work with teams (management, boards,

stakeholders) to
– List possible projects or initiatives
– Rank each by magnitude of impact
– Rank each by probability of success
• Place them on the matrix
• Concentrate on high value/high
probability options
Value of the analysis

• Focus
– No low hanging fruit, no wild gambles
• Process
– Generates commitment
– Builds trust
• Brings data and analysis
– To what is for most entrepreneurs, intuitive
• Models a useful tool
Legal structures

• Corporations are liability and task entities

– With governance implications
• Sole proprietorships
– S corporation
• Partnerships
• C Corporations
– LLC
• Stakeholder Corporations
– ESOPs, cooperatives, joint ventures, community
corporations
Support structures

• Boards of advisors
– Next size up, pay
• Professional team
– Accountant, lawyer, coach, tie-breaker,
insurance?
Governance section

• Key stakeholders and how and why

they count
• Legal structure
• Key agreements that distribute power
and responsibility
Management responsibilities
• Vision
– Blends personal & organizational visions
– Fosters common culture
• Strategy
– Environmental scanning
– Strategy
– Measurable objectives
• Resources
– Tools, systems, education
Management responsibilities

• Systems
– Efficient, effective processes
– Fit between systems
• Relationships
• Staff development
Responsibility charting

• Provides a language and forum for

discussing decision making -- at
governance, management or staff level.
• Creates greater clarity about how
decisions are to be made and who will
be accountable for those decisions.
• Allows for a discussion of the difficult
issues of power and authority.
 Responsibility chart

DECISION:
Roles Involved
CEO Oper. Sales Fin.
Types of Participation

Approve

Responsible

Consult

Informed
Responsibility chart details

• Approve
– Sign off on decisions
– Veto power
– Final responsibility to commit resources
– Shares accountability
• Responsible
– Takes the initiative, develops alternatives,
recommends, implements.
– Accountable for results
Responsibility chart details

• Consult
– Input but no veto power
• Inform
– Notify
Management team section

• Names & Experience

– Resumes
• Missing members
– Recruiting plan
• Advisors & roles
– Recruiting plan
Operations

• What you do
• How you do it
• Cost implications
Operations Examples

• Arbill
– computerized information, pay incentives,
training, culture, evidence
• Anderson
– architected solution simplifies training and
control and resource management
– ties in with knowledge management
Operations section

• Key processes & strategy

• Efficiency / cost control
• Recruiting, training, evaluating
strategy
• Fit with overall strategy
• Continuous improvement
Operations exercise

• Sketch out basic operational steps

• Note cost assumptions
• Create research list to confirm
assumptions, fill in gaps, collect
numbers
Bibliography

• Verna Allee, “Reconfiguring the Value Network,” The Journal of Business Strategy, 21 (4),
PP 36-39.
• R Boulton, B Libert, S Samek, “A Business Model for the New Economy,” The Journal of
Business Strategy, 21 (4), July-August 2000, pp 29-35.
• James Collins & Jerry Porras, Built to Last (HarperBusiness, 1994).
• Richard D’Aveni, Hypercompetition (Free Press: 1994).
• Kathleen Eisenhardt & Donald Sull, “Strategy as Simple Rules,” Harvard Business Review,
January 2001.
• Mark Feldman & Michael Spratt, PWC, Five Frogs on a Log: A CEO’s Guide to Accelerating
the Transition in Mergers, Acquisitions and Gut Wrenching Change, (HarperBusiness
1999).
• Pankaj Ghemawat, Strategy and the Business Landscape (Prentice Hall, 2001).
• G. Hamel & C. K. Prahalad, “Strategic Intent,” Harvard Business Review, May-June 1989.
• Robert Hamilton lecture notes, 1998.
• Robert Hamilton, E. Eskin, M. Michael, "Assessing Competitors: The Gap between
Strategic Intent and Core Capability", International Journal of Strategic Management-
Long Range Planning, Vol. 31, No. 3, pp. 406-417, 1998
Bibliography, cont.

• TL Hill lecture notes, 1999, 2001.

• J. D. Hunger & T.L. Wheelan, Essentials of Strategic Management (Prentice Hall, 2001).
• Ivan Lansberg, Succeeding Generations (Harvard Business School Press, 2000).
• B. Mahadevan, “Business Models for Internet-based E-Commerce,” California Management Review, 42
(4), Summer 2000, pp 55-69.
• Henry Mintzberg & James Brian Quinn, Readings in the Strategy Process, 3rd Edition (Prentice Hall,
1998).
• Alex Moss, Praxis Consulting presentation on worker ownership, 1999
• Sharon Oster, Modern Competitive Analysis, 2nd Edition (Oxford University Press, 1994).
• Michael Porter, Competitive Advantage (Free Press, 1985).
• Michael Porter, “What is Strategy?”, Harvard Business Review, November-December 1996.
• Jim Portwood lecture notes, 1998.
• C.K, Prahalad & G. Hamel, “The Core Competence of Corporations,” Harvard Business Review, May-
June, 1990.
• Pamela Tudor, Notes on responsibility charting, 1999
Evaluation

• What was the most useful part of

today’s workshop?
• Least useful?
• What should I definitely keep the
same?
• What should I change -- and how?